Europe: Car sales drop pushes demand to lowest on record

VW, which relies on luxury cars for more than half of its profits, said last week that it wants mass-market divisions to improve margins while contributing to the Wolfsburg, Germany- based company's target of becoming the world's biggest automaker by 2018.

PHOTO: Jens Meyer, AP

By Mathieu Rosemain, Bloomberg News

Originally published: September 18, 2013

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European car sales fell in August, bringing deliveries this year to the lowest since records began in 1990, as record joblessness in the euro region hurt deliveries at Volkswagen AG, PSA Peugeot Citroen and Fiat SpA.

Registrations dropped 4.9 percent to 686,957 vehicles from 722,458 cars a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in a statement. Eight-month sales declined 5.2 percent to 8.14 million autos.

The economy of the 17 countries using the euro emerged from a record six-quarter recession in the three months through June. Aftereffects such as a jobless rate in the area that held at 12.1 percent in July led industry leaders at the International Motor Show in Frankfurt a week ago, including Peugeot Chief Executive Officer Philippe Varin, to stick to predictions of a sixth consecutive annual car-market contraction in 2013.

"We’re still in red territory," Florent Couvreur, a Paris-based analyst at CM-CIC Securities, said by phone. "When people say we’ve reached the bottom, I say, ‘watch out,’ because the market is still decreasing. The drop is a little less steep, but we’re still falling because of the bad macroeconomic environment."

Volkswagen fell as much as 1.3 percent to 180.70 euros and was trading down 1.2 percent at 9:14 a.m. in Frankfurt. Peugeot dropped 2.9 percent to 12.28 euros in Paris, while Fiat declined 1.1 percent to 6.07 euros in Milan.

Earlier Gains

The European car market rose 4.9 percent in July to 1.02 million vehicles. The gain was the second this year, following a 1.7 percent increase in April that marked the first growth in European car sales in 19 months. The trade group releases July and August sales figures simultaneously each September.

Registrations in the past two months were affected by differences in the number of business days versus 2012, with one more in July and one less in August, the ACEA said today. Figures for both August and the year to date were the lowest since the trade group started compiling numbers 23 years ago, Economics and Statistics Director Quynh-Nhu Huynh said in an e- mail.

European Central Bank executive board member Yves Mersch said in Dubai yesterday that the European region is seeing "tentative green shoots" of economic recovery. ECB President Mario Draghi said that while the euro area’s return to growth in the second quarter is "welcome," any recovery is "only in its infancy."

Western Europe

The ACEA reports figures for the EU plus Switzerland, Norway and Iceland. Deliveries in western Europe, which excludes countries that have joined the trade bloc since mid-2004, fell 5.3 percent to 632,825 vehicles in August. Car sales in Croatia, which became the EU’s 28th member in July, will be tabulated by the association starting in January,

Four of Europe’s five biggest automotive markets shrank last month. Deliveries in top-ranked Germany dropped 5.5 percent to 214,044 vehicles. That compared with a 2.1 percent increase in July. The U.K. market, the region’s second biggest, expanded 11 percent to 65,937 cars in August.

European sales by Volkswagen, the region’s largest carmaker, posted an 11 percent drop in sales last month, dragged down by a 17 percent plunge at the namesake VW brand. The Audi division, the world’s second-largest maker of upscale vehicles, sold 6.4 percent fewer cars in Europe.

VW’s Target

VW, which relies on luxury cars for more than half of its profits, said last week that it wants mass-market divisions to improve margins while contributing to the Wolfsburg, Germany- based company’s target of becoming the world’s biggest automaker by 2018. Skoda and Seat brand sales declined by 4.6 percent and 3.1 percent in August, respectively.

Paris-based Peugeot, Europe’s second-biggest carmaker, posted an 18 percent sales drop in the region in August. Varin forecast at the Frankfurt show on Sept. 10 that there will be "slightly positive growth" in European auto-industry deliveries next year.

Renault, which has its headquarters in the Paris suburb of Boulogne-Billancourt, outperformed other mass-market carmakers. Regional sales at Europe’s third-largest auto manufacturer gained 5.8 percent in August. Renault CEO Carlos Ghosn said last week that the car market may expand slightly more than 1 percent in 2014.

Ford’s Strategy

Ford Motor Co.’s European sales decreased 0.9 percent in August. Stephen Odell, head of the Dearborn, Michigan-based carmaker’s business in the region, said on Sept. 9 that "it does feel like we’re running along the bottom" of the auto- market contraction. He outlined plans for Ford, which is forecasting a loss of $1.8 billion in Europe for 2013, to expand model introductions over the next five years to 25 from an earlier projection for 10 new vehicles.

Bayerische Motoren Werke AG, the world’s biggest luxury- vehicle producer, posted 9.9 percent more registrations in Europe. Sales in the region at Daimler AG rose 5.5 percent as the Mercedes-Benz division, the third-ranked luxury-auto maker, reported an 8.5 percent gain, versus a 24 percent plunge in demand for two-seat Smart cars. Chief Executive Officer Dieter Zetsche said at the Frankfurt show that Mercedes doesn’t have enough production capacity to meet global demand as sales of its A- and B-Class compacts grow.

Opel Models

General Motors Co.’s sales in Europe last month rose 0.7 percent as an 18 percent gain by the Chevrolet brand more than offset a 3.4 percent decline at the Opel division. Karl-Thomas Neumann, head of Opel, said on Sept. 11 that the Adam city car and Mokka compact sport-utility vehicle have helped stop a market-share decline in the region.

The models are part of a reorganization that includes a German auto-plant shutdown and pay freeze for remaining workers as Detroit-based GM seeks to restore profit in Europe after accumulating $18 billion in losses in the region since 1999.

"What we’re seeing right now in the European car industry is a squeezed middle," Allan Rushforth, head of Hyundai’s European operations, said in an e-mail before figures were released. "German premium brands are coming down through the market while Hyundai is moving up through the segments, making life very difficult for those European volume brands rooted in the mainstream."